FTSE falls another 1% but Arm bucks trend as competition fears ease

Arm has bucked a falling market as fears about growing competition from US rival Intel faded.

The chipmaker's shares had been under pressure ahead of an expected announcement from Intel, which some analysts believed would see the US group attempt to usurp Arm as a major supplier to Apple. In the event Intel announced a new 3D chip, Ivy Bridge, which it eventually hopes will be used in Arm's key mobile and smartphone market. But initially the chip will be aimed at PCs and servers, an area where Arm has yet to make serious inroads. George O'Connor at Panmure Gordon said:

The new Intel chips are due for delivery late in 2011 - yes they consume more power and cram more on to the real estate but they firstly attack the classic Intel world of PCs and servers - later they hope to crack the tablet and smartphone market with them. This should ease concerns that Arm gets whacked in the short term - not the beginning of the end but the end of the beginning as a great man once said.

RBS said many companies were working on 3D chips and advised clients to buy Arm shares on any weakness. Vijay Anand at Espirito Santo however has a sell recommendation on Arm, and said the Intel news had mixed implications for the company:

We believe this technology should strengthen Intel's dominance in the PC market. Given how market is already factoring in significant success for ARM in the PC processor market (more than 50% market share by 2020 to justify the current share price) while it has 0% share at present and actual products are still to be launched, this announcement is a negative read for ARM.

[But] while this announcement makes Intel more competitive in mobile space, it is a "necessary but not sufficient" step and we believe Intel still needs to do a lot more work to seriously challenge ARM in the mobile world. Given Intel's limited success to date, we still don't think Intel is likely to pose any major threat to ARM in mobile space in the near-term.

In the end Arm closed 9p higher at 567p.

Overall the market continued this week's decline, with the FTSE 100 down another 64.09 points to 5919.98. A continuing slump in commodity prices across the board left mining shares lower, with Ferrexpo down 17.1p to 462.6p despite bid speculation, as it said iron ore production was down 9.3% in April compared to a year earlier. Vague talk of possible interest from BHP Billiton - with a price of 750p a share mentioned - failed to halt the slide. BHP ended 36p lower at 2385.5p.

Ahead of Friday's widely watched US non-farm payroll numbers there were some disappointing jobless claims numbers, showing a jump to 474,000 rather than an expected fall. To no one's surprise both the Bank of England and ECB left interest rates on hold, while the chances of a European rate rise next month receded after cautious comments from ECB President Jean-Claude Trichet.

Banks proved a drag on the leading index, with Lloyds Banking Group 4.64p lower at 53.38p after its surprise £3.2bn provision for mis-selling of payment protection insurance. Royal Bank of Scotland ended down 1.22p at 40.48p and Barclays fell 7.5p to 276.3p.

A disappointing update from Schroders sent it down 172p to £17. First quarter profits rose 11% to £103.8m but the market had been expecting a figure closer to £116m.

Angus Campbell, head of sales at Capital Spreads, said:

The worrying thing about the recent sell off is that apart from a bit of weakness in the banking sector and the usual concerns that have been haunting the markets for the last couple of years, there isn't any one key factor that you can pinpoint to explain the declines. The speed with which commodities are correcting is quite scary and it's not far off panic selling. Brent crude has declined ten percent this week, gold five percent and silver, a thumping thirty percent.

But transport groups were buoyed after Go-Ahead, up 95p to £14.95, said a rise in bus and rail passengers meant it would beat previous expectations for full year profits. Stagecoach added 4.9p to 240.7p and FirstGroup 11p to 335p.

Capital & Counties closed 3.2p lower at 168.4p as it placed new shares at 162p each to raise £100.6m to fund development of its properties in London's Covent Garden and to pay for future acquisitions.

Lower down the market budget airline Flybe - floated at 295p in December - dropped 57.5p to 172.5p after warning fuel costs and consumer caution meant profits would be lower than previous forecasts.

Finally, bad news for punters in smaller exploration companies. Encore Oil lost 24.5p to 84.5p following news its Cladhan appraisal well in the North Sea could not confirm hydrocarbons were present. It plans to drill two further test wells to gather more information.